Conn’s Inc. (NASDAQ: CONN) Q1 2021 Earnings Call Transcript

Conn’s Inc. (CONN) Q1 2021 earnings call dated June 09, 2020

Corporate Participants:

Norm Miller — President, Chief Executive Officer and Chairman

Lee A. Wright — Executive Vice President and Chief Operating Officer

George L. Bchara — Chief Financial Officer

Analysts:

Bradley B. Thomas — KeyBanc Capital Markets, Inc. — Analyst

Rick Nelson — Stephens Inc. — Analyst

Brian Nagel — Oppenheimer & Co. Inc. — Analyst

Kyle Joseph — Jefferies, LLC — Analyst

William Ryan — Compass Point Research & Trading — Analyst

Presentation:

Operator

Good morning, and thank you for holding. Welcome to Conn’s, Inc. conference call to discuss earnings for the fiscal quarter ended April 30, 2020. My name is Brock, and I’ll be your operator today. [Operator Instructions] The Company’s earnings release dated June 9, 2020 was distributed before market opened this morning and can be accessed via the Company’s Investor Relations website at ir.conns.com.

During today’s call, management will discuss, among other financial performance measures, adjusted net loss and adjusted earnings per diluted share. Please refer to the Company’s earnings release that was issued today for a reconciliation of these non-GAAP measures to their most comparable GAAP measures.

I must remind you that some statements made in this call are forward-looking statements within the meaning of federal securities laws. These forward-looking statements represent the Company’s present expectations or beliefs concerning future events. The Company cautions that such statements are necessarily based on certain assumptions which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today.

Your speakers today are Norm Miller, the Company’s CEO; Lee Wright, the Company’s COO; and George Bchara, the Company’s CFO. I would now like to turn the conference over to Mr. Miller. Please go ahead, sir.

Norm Miller — President, Chief Executive Officer and Chairman

Good morning, and welcome to Conn’s first quarter of fiscal year 2021 earnings conference call. I want to start today’s call by updating you on the actions we are taking to navigate the COVID-19 crisis before turning the call over to Lee and George, who will provide additional details on the quarter and our response to the current economic and business landscape.

Since our last call only two months ago, economic and market conditions remained extremely fluid as a result of the evolving COVID-19 pandemic. During the first quarter, local municipalities recognized the essential home products we offer our communities, and nearly all our showrooms remained open. In addition, the diversity of our retail products, financial offerings and distribution channels has helped offset the extreme challenges Conn’s and other retailers have encountered during this period. We continue monitoring federal, state and local mandates, and we will take decisive actions as the crisis evolves to ensure we are protecting the health and safety of our employees and our customers.

Consumers across our markets are looking for high-quality brand name products to adapt to their in-home lifestyles. Our free next day delivery, in-home service and product support, and omni-channel platform are especially resonating with consumers during these challenging times. Customers are also looking for flexible credit options to affordably finance their purchases. We believe Conn’s compelling value proposition will remain strong throughout the COVID-19 crisis, demonstrating the resiliency of our business model.

As the country emerges from the crisis, we believe that our addressable market will grow as credit scores decline and our value proposition will resonate with more consumers as other lenders limit access to credit. In addition, we believe the consumers will be increasingly interested in investing in their homes, aligning with our focus on home products. While the near-term will remain uncertain as a result of the COVID-19 crisis, we believe we will benefit from the investments we have made to our business over the past five years, our experienced leadership team and the diversity of our retail and financial products. I want to also thank our associates for their continued dedication serving our customers through these uncertain times.

So, with this overview, let me turn the call over to Lee, who will provide more details on our first quarter operating results and the specific actions we are taking to respond to the COVID-19 crisis.

Lee A. Wright — Executive Vice President and Chief Operating Officer

Thanks Norm. Starting with our credit performance, our first quarter results reflect the build in our allowance for bad debts associated with accounting for the COVID-19 crisis under CECL, which was responsible for more than half of our first quarter provision. George will provide additional details on the components of our provision for bad debts and our allowance for loan losses in his prepared remarks.

Overall, underlying credit and portfolio performance during the quarter was mixed, primarily due to the economic impacts of the COVID-19 crisis. However, during the quarter, our core customer benefited from tax refunds and government stimulus, which combined with strong collection performance, helped drive favorable payment and portfolio trends. Our first quarter credit spread was 620 basis points. Over the next several quarters, we expect our credit spread will continue to be under pressure as charge-offs remain elevated due to lower performing vintages and the economic impacts of the COVID-19 pandemic.

Overall, we remain focused on derisking our credit segment. In mid-March, we began implementing a series of underwriting changes in response to the COVID-19 crisis. These included reducing originations of higher-risk applicants, selectively increasing down payments and lowering credit limits. As a result, we believe we are taking the necessary actions to prudently manage risk. During the first quarter, the balance of retail sales financed through Conn’s in-house financing fell to the lowest level in eight years and was 63.3% compared to 68.2% for the same period last fiscal year. These trends continued in May, and the balance of retail sales financed through Conn’s in-house credit offering fell even further for the month.

Unlike other companies, we have the flexibility to tighten credit, while still providing consumers with alternative financing options as a result of our multiple third-party partnerships and diverse credit options. During the first quarter, we experienced an increase in cash and credit card transactions in retail sales financed through Synchrony Financial, further derisking our credit segment. Combined, over 28% of sales were to cash and higher credit quality customers, which we believe reflects our strong relationship with Synchrony and our ability to attract a wide variety of customers. Our next day delivery, in-home service capabilities and omni-channel experience provided additional opportunities to connect with a larger number of higher credit quality customers.

In addition, we believe there are opportunities to expand our lease-to-own sales as a result of recent underwriting changes and the higher application volume we have experienced. The balance of sales through lease-to-own was 8.5% of total retail sales during the first quarter. We are working with Progressive and continue to refine and improve our internal execution to drive higher lease-to-own sales.

For sales financed through our in-house offering, we are leveraging the experience we have gained from past natural disasters to balance collection efforts with customer support programs. Tax refunds and government stimulus, combined with our own internal relief programs, have helped relieve some of the financial burden many of our customers have experienced despite the disproportionate impact the COVID-19 crisis has had on lower-income households. Consumers have also been spending less and saving more, with many consumers using excess cash to pay down debt. As a result, first quarter cash repayments on outstanding loans were in line with typical seasonal trends.

Lastly, we are encouraged by the strong application trends we are seeing, which we believe demonstrates the growing need for our unique in-house credit offering. Total applications increased 14.2% from the prior year period to over 295,000 applications in the first quarter, representing the highest first quarter application volume in four years. This was driven by strong growth in online applications versus the prior year, and we experienced sequential monthly improvements throughout the first quarter.

As you can see, we are taking decisive actions within our credit segment to ensure we can navigate this period of significant economic uncertainty, while experiencing strong application trends for our in-house credit offering and establishing lasting relationships with our customers. We believe tighter underwriting will continue to impact retail sales over the near term, but these strategies are necessary as we respond to the COVID-19 crisis.

So, let’s look at our retail segment performance in more detail. Total retail sales were down 12.1% for the first quarter and benefited from the contribution of new stores and higher home appliance and home office sales. First quarter same-store sales were down 17.6%, primarily due to the impacts of COVID-19 on our operations, including more stringent underwriting standards and lower sales of discretionary categories. As we mentioned on our last conference call, first quarter same-store sales initially improved from fourth quarter levels. Same-store sales were down approximately 30% in late March and early April as a result of reduced store hours and occupancy in response to the COVID-19 crisis and the impact proactive underwriting changes implemented during the quarter had on sales. Towards the end of April, retail trends started improving, and we are encouraged by the positive momentum that continued in May.

Total retail sales for May were down only 1.6%, while same-store sales were down 6.8%, representing an over 20 percentage point improvement from April. In addition, we estimate same-store sales have been impacted by 15% to 20% since we began adjusting underwriting in mid-March in response to the COVID-19 crisis. We have also increased down payment requirements for in-house credit customers, and down payments in May were 5.6% compared to 2.4% in February before recent underwriting adjustments began.

The dramatic increase in cash, credit card and Synchrony customers also continued during the month of May and represented 43.1% of retail sales, which is up over 17 percentage points from May 2019. This growth speaks to the strength of our business model and our diverse retail offering. Recent retail trends are encouraging, but we expect continued variability in our monthly performance as a result of the uncertain economic environment and more challenging sales comparisons later in the second quarter.

Last year’s launch of our new e-commerce platform enabled significant growth in this channel, as sales increased over 700% compared to the prior year period and accelerated from the growth rate we experienced in the fourth quarter. We believe stay-at-home mandates were the primary driver of this increase, but the growth in first quarter e-commerce sales also highlights our ability to serve customers through this digital channel. Having robust digital capabilities is important not only for the retail purchase, but also to support credit applications and customer engagement. We continue to invest in our digital capabilities, and momentum is building in our evolving online, mobile and e-commerce strategy. In addition, our existing infrastructure and ability to offer free next day delivery of large home goods directly to households is a distinct advantage, which should support our future digital growth.

Another meaningful driver to first quarter retail performance was the shifting mix of retail sales. As customers began to shelter in place, we experienced increasing demand for essential products within the home appliances and home office categories, partially offsetting the declines in more discretionary categories such as furniture and mattress and consumer electronics. It is important to note, margins in home appliances and home office are not as high as our furniture and mattress category. This shift in retail product mix, combined with lower total sales, pressured first quarter retail gross margin, which declined 380 basis points from the prior fiscal year period.

During the first quarter, we opened two new showrooms in existing markets, and we plan on opening a total of six to eight new showrooms this fiscal year. As part of our response to the COVID-19 crisis, we have reduced the amount of new showrooms planned for this fiscal year and have also decided to delay any new showrooms associated with our future Florida distribution center to next fiscal year.

To conclude my prepared remarks, we believe our differentiated business model is resilient to changing economic cycles as a result of our omni-channel, retail and credit platforms. This, combined with our compelling financial model, experienced leadership team and strong balance sheet, will provide the necessary resources to navigate the current economic challenges as a result of the COVID-19 crisis. We are working hard to support our employees, customers and communities throughout this period, and I look forward to updating investors on the progress we are making as we respond to the COVID-19 pandemic and improve our credit and retail performance.

Before I turn the call over to George, I also want to thank our associates across the 14 states in which we operate on behalf of the entire leadership team. Thank you for your hard work, service and dedication through this challenging period.

Now, let me turn the call over to George to review our financial performance.

George L. Bchara — Chief Financial Officer

Thanks Lee. Before discussing our financial results, I want to start by highlighting a couple of items. On June 5, 2020, we amended the terms of our ABL facility to provide four quarters of relief from the interest coverage covenants. Our ABL facility is an important source of funding for our business, and we believe that this amendment will help navigate the uncertainty as a result of the COVID-19 pandemic.

To put our current liquidity situation into context, when we drew down on the ABL in March, we had approximately $400 million of cash and immediately available liquidity, and we ended the quarter with $439 million of cash and immediately available liquidity. We had over $295 million of total cash and available liquidity at June 5, 2020 after adjusting for a $125 million liquidity buffer that we are required to maintain during the covenant relief period of our amended ABL facility. As you can see, since the beginning of the COVID-19 pandemic, we have used relatively little cash and available liquidity, and in some periods, actually generated cash, as we have purchased less inventory and our existing customer accounts receivable portfolio has paid down.

I also want to highlight the impact of CECL, which we adopted on February 1, 2020. As a result of the adoption of CECL, we recorded a $98.7 million increase to our allowance for bad debts to reflect the required change to lifetime expected losses. This increase was recorded through equity on February 1, 2020. During the first quarter, our allowance for bad debts also increased by $65.5 million to account for the change in the economic outlook as a result of the COVID-19 pandemic. This increase was recorded to our first quarter provision for bad debts and impacted first quarter net income by $1.76 per share.

As we have communicated before, CECL is an accounting change and does not affect the cash flow or fundamental economics of our business. Despite the loss we recorded for the three months ended April 30, 2020, we generated strong operating cash flows of $152.5 million. The 207% increase in operating cash flow over the prior fiscal year period was primarily due to an increase in payments from our customers, a higher percentage of third-party sales and effective working capital management.

Moving to our financial results, on a consolidated basis, revenues were $317.2 million for the first quarter of this fiscal year, representing a 10.3% decline from the same period last fiscal year. For the first quarter, we reported a GAAP loss of $1.95 per share compared to GAAP net income of $0.60 per diluted share for the same period last fiscal year. On a non-GAAP basis, adjusting for certain charges and credits, we reported a loss of $1.89 per share for the first quarter compared to income of $0.58 per diluted share for the same period last fiscal year. Reconciliations of GAAP to non-GAAP financial measures are available in our first quarter earnings press release that was issued this morning.

From an investment and operational perspective, we continue to focus on delaying or eliminating certain uncommitted capital expenditures, more aggressively managing working capital levels and reducing SG&A expenses. Consolidated SG&A for the first quarter of fiscal year 2021 was $113 million, a 4.2% decline from the prior fiscal year period. As the COVID-19 crisis began impacting our operations halfway through the quarter, we quickly and aggressively reduced expenses and more than offset higher costs associated with 12 additional showrooms opened over the last 12 months.

Looking at our retail segment in more detail, total retail revenues for the first quarter were $230.6 million, a 12.1% decline from the same period last fiscal year. Retail segment operating income was $5.2 million compared to $25.9 million for the same period last fiscal year. Retail gross margin for the first quarter was 36.2%, a decrease of 380 basis points from the same period last year. The reduction in retail gross margin during the quarter was primarily driven by the impact of fixed logistics costs on lower sales, a decrease in retrospective income on RSA commissions and higher sales of lower margin products.

Finally, turning to the credit segment, finance charges and other revenues were $86.6 million, a 5.1% decline from the same period last fiscal year. The credit segment loss before taxes was $82.4 million compared to a loss before taxes of $1.4 million for the same period last fiscal year. The first quarter of fiscal year 2021 credit segment loss was primarily due to the $77.2 million year-over-year increase in the provision for bad debts in the credit segment, which was driven by the first quarter allowance build as a result of COVID-19.

With this overview, Norm, Lee and I are happy to take your questions. Operator, please open the call up to questions.

Questions and Answers:

Operator

[Operator Instructions] The first question today is from Brad Thomas of KeyBanc Capital Markets. Please proceed with your question.

Bradley B. Thomas — KeyBanc Capital Markets, Inc. — Analyst

Hi, good morning, Norm, Lee and George, and thanks for taking my question.

Norm Miller — President, Chief Executive Officer and Chairman

Good morning, Brad.

Bradley B. Thomas — KeyBanc Capital Markets, Inc. — Analyst

I wanted to first start off a bit with same-store sales and discussion a little bit of maybe the trend and some of the underlying drivers. Could you maybe talk a little bit about the types of customers that you’re seeing show up, how average selling price is changing, what it is they’re coming to you for, and maybe how that’s changed as you’ve moved into May and thus far in June? Thanks.

Norm Miller — President, Chief Executive Officer and Chairman

Sure, absolutely, Brad. First, just kind of to recap where we were, if you remember from the call — from our call a couple of months ago, as COVID — as the pandemic originally hit, we were seeing same-store sales down in the 25% to 30% range. We saw that rebound mid-April or so up into the high-teens to the low-20s, and we’ve seen that continue to build through April and into May with May same-store sales being down only 6.8%. We have seen from a mix standpoint, which is why you saw our margins where they were, a shift much stronger from an appliance, a home product standpoint. Now, I will say, in the last three weeks or four weeks, we’ve seen a material pickup in what we consider more discretionary categories such as furniture. We have seen the furniture category pick up materially from the 30%, 35% down that it was back in the midst of the pandemic. So that’s positive to see.

We have seen a material shift from a mix standpoint, as you heard, with — from a customer credit standpoint during the pandemic as well. Conn’s financing, which historically has run in the mid-to-high 60% range, approaching at times 70%, is down less than 50% of the business as we sit here today, as we’ve tightened 15% to 20% of the customers coming in. As a result of that, we’ve seen our Synchrony and our cash customers go up dramatically, as we mentioned in the script, up in May over 43% which is 1,700 basis points up from just a year ago in May. We’ve also seen our lease-to-own for the quarter at 8.5%, which is still under where we expect it to be, but it is the strongest performance that we’ve seen in a quarter since we partnered with Progressive two years ago, and I think that we have significant upside there going forward.

Bradley B. Thomas — KeyBanc Capital Markets, Inc. — Analyst

That’s really helpful, Norm. Thank you. And just to follow up on that, with the tightening that you’ve done, what’s the current run rate headwind to same-store sales? Is that, that 15% to 20% number that you just referenced? Again, what’s the headwind run rate number on same-store sales from the tightening? And how are you thinking about the underwriting decisioning and the ability to loosen or get tightened — more tight as you think about perhaps the months ahead here?

Lee A. Wright — Executive Vice President and Chief Operating Officer

Hey, Brad, it’s Lee. So, as you said, it is 15% to 20% on a run rate basis that we have tightened we believe. As we think about our customer mix and what’s going on from the economic environment today, we want to be cautious. Clearly, there’s a lot of government stimulus there, and it’s certainly helped with, as we talked about, from a collection standpoint and payment standpoint. But obviously, as you continue to go forward in the quarter and in the year, we have to be thoughtful about how that customer is going to be able to react. But as Norm talked about, we’re very pleased as we’ve seen the cash, credit card and Synchrony customer mix increase pretty dramatically, which is why I go back to the fact that we’re an omni-channel retailer, providing home products. So — and as Norm talked about, early in the pandemic, we saw the home office equipment, the computers for the online learning, the at-home work process, we had those computers and necessary equipment for our customers. Then it shifted to appliances, now coming back to furniture and mattresses, which — again, as the customer is more focused on what’s going on in their home, we have all of those product categories. So actually, we’re in a very good position and we’re actually very pleased with our ability to serve our customers with that full spectrum of credit offerings regardless of who is walking in the door and whatever they want for their home.

Norm Miller — President, Chief Executive Officer and Chairman

And what I would say, Brad, is, when I talk about the increase of cash customers and Synchrony, that strategic effort of us, recognizing we had the opportunity to grow that business, actually did not start with the pandemic. If you go back, you will see over the quarters, you’ve seen a steady increase of our Synchrony business from about 15% of the product mix before the pandemic — or 15% of our sales mix before the pandemic several years ago. So, we’ve been seeing that approaching before the pandemic up into the low-20% balance of sale, and now we’re seeing it tick up even higher than that. So, we’ve been putting energy and effort with Synchrony and our marketing efforts to ensure that we’re tapping on that customer base and utilizing the entire credit spectrum. Our Conn’s financing we think is a differentiator with anybody else out in the marketplace. But our full credit spectrum from lease-to-own, to Conn’s, to Synchrony and cash and the fact that we can offer the products, the quality products and the merchandise for customers over the entire spectrum, we believe gives us a significant differentiator in the market — differentiation in the marketplace.

Bradley B. Thomas — KeyBanc Capital Markets, Inc. — Analyst

Really helpful. Thank you so much, Norm. Thanks Lee.

Norm Miller — President, Chief Executive Officer and Chairman

Thanks Brad.

Operator

The next question is from Rick Nelson of Stephens. Please proceed with your question.

Rick Nelson — Stephens Inc. — Analyst

Thanks very much. Good morning, guys. So, Norm, can you speak to credit trends from April to May as the economies have opened up? What you are seeing maybe with delinquencies? Or in other words, do you want to frame-up the credit book?

Norm Miller — President, Chief Executive Officer and Chairman

Clearly, with the tightening that we had initiated in March, and very, very early, what I would say, within the process. We started initially tightening in early March, pleased with what we’re seeing with the credit book. Now, the credit book obviously on the Conn’s financing side is certainly going to be smaller, so some of the optics from a metric standpoint will be challenged as the denominator is smaller going forward. But when we look at payments and behavior of the customer within the portfolio, a combination of both the stimulus and our ability to stay in contact with the customers, frankly to be at or above where our payments were a year ago with the customer in the midst of the pandemic, that’s certainly very, very encouraging to us going forward. Now, when the extended unemployment benefits and how the recovery continues to unfold, difficult for us to predict. So, we’re still being very cautious from an underwriting standpoint. But I would say, as you, I’m sure, heard from many other lenders out there in the marketplace, very encouraged and frankly a little surprised with the behavior of the customer up to this point in the pandemic, I would say.

Rick Nelson — Stephens Inc. — Analyst

Thanks for that color. Also want to ask about the margin pressures that we saw in the quarter. I know you pointed to mix as one of the drivers. But if you could provide some color around that on a like category basis, perhaps what you’re seeing in terms of margin? And then the online sale, curious how the profitability compares there versus the stores?

Norm Miller — President, Chief Executive Officer and Chairman

So, the margins within the categories, we’re pleased generally where that performance is year-over-year, and it’s fairly consistent. What I’d say is, there’s two primary drivers, Rick, when you look at the margin being down 300 plus basis point. Probably 70% of it is just simply mix between the categories, as we mix with appliances, stronger appliances and home office. Those are lower margin categories compared to our mattress and furniture category. So that’s driving probably 70% of the miss. The other 30% of the margin miss is some deleveraging from a distribution cost standpoint, both the new Houston distribution center that we built, and although we’ve delayed the Florida build, we have — for the Florida opening, we are starting to incur some costs there from a distribution standpoint. And clearly, lower sales overall are generally going to delever your fixed costs there. So it’s really those two things. There is nothing inherently that we have concerns about the overall margin of the business on any individual category.

Lee A. Wright — Executive Vice President and Chief Operating Officer

And Rick, from an e-commerce standpoint, obviously, we’re very pleased with the growth that we’re seeing. But it’s not inherently less profitable in the sense that the product — the overall product margin is basically the same as our bricks and mortar operation. Again, we have the same logistics operation to get those products delivered into our customers’ home. The only thing I might say is, the overall ticket size is a little bit smaller than we see online. But again, from an overall growth standpoint, what we’re doing from e-commerce, we’re very excited about the opportunity we have in front of us.

Norm Miller — President, Chief Executive Officer and Chairman

You typically have less payroll costs commission-wise there with the e-commerce. So anything net-net, even though the ticket is smaller, your margin rate is actually as good, if not a little better, right now with our e-commerce business.

Rick Nelson — Stephens Inc. — Analyst

Great. Thanks for that. Finally, if I could ask you about the regional performance, what is standing out in terms of areas of strength and weakness? I guess, the oil patch, given the oil price decline, what you’re seeing in the Houston market?

Norm Miller — President, Chief Executive Officer and Chairman

Yeah, what I would say is, regionally, that’s the one area I would highlight is that in Houston — we don’t even frankly consider Houston as much. But we do have a very strong oil market in West Texas and parts of Louisiana that we consider that impacted by the oil. And we are seeing delinquencies there. Historically, they run lower than the Company average. They are up in that market. They’re still at about now where the company average is delinquency-wise. But we have seen those rise at a higher level than other regions. And from a tightening standpoint and a credit standpoint, we’re aware of that and adjust accordingly if that were to — to be cautious in case that were to linger within those oil markets.

Rick Nelson — Stephens Inc. — Analyst

Got you. Great, thanks a lot, and good luck as we push forward.

Norm Miller — President, Chief Executive Officer and Chairman

Thanks Rick.

Operator

The next question is from Brian Nagel of Oppenheimer. Please proceed with your question.

Brian Nagel — Oppenheimer & Co. Inc. — Analyst

Hi, good morning.

Norm Miller — President, Chief Executive Officer and Chairman

Good morning, Brian.

Lee A. Wright — Executive Vice President and Chief Operating Officer

Good morning, Brian.

Brian Nagel — Oppenheimer & Co. Inc. — Analyst

Thanks for taking my question. The first question I want to ask, it bridges credit and retail. But Norm, as you talked [Phonetic] on the call, clearly, Conn’s took the action to tighten lending standards, but you’ve also said that you’ve been — I think If I understood you correctly, you said that you’ve been pleased with or even surprised with the underlying performance of the consumer. So the question I have is, especially if this downturn so to say is unique in nature, shorter term in nature, does Conn’s run the risk of getting too conservative here with credit at a time the underlying demand for the products you’re selling is actually quite good?

Norm Miller — President, Chief Executive Officer and Chairman

That’s a fair question, Brian. It’s — the issue with the credit business is, the decisions we make today, we won’t see those fully played out for seven, eight, nine, 10 months into the future. So with the unknown on the recovery side and the punitive nature that if we are too loose from a credit standpoint, that would impact the business in a detrimental way down the road. It’s a risk opportunity. We may give up some sales in the short run if we’re more conservative from an underwriting standpoint. But frankly, I would take that trade-off to ensure that we don’t have a significant issue from a credit standpoint down the road if it plays out where the recovery is not — is more longer in nature and deeper than expected. But it’s a fair question.

Brian Nagel — Oppenheimer & Co. Inc. — Analyst

Yeah, that’s [Indecipherable]. Thanks Norm. And the second question, I think this is more for George. George, there’s clearly some noise here within the loan loss provision, given the accounting change and the underlying shift in credit dynamics. Is there a way that you could help us understand how — and I know this is difficult to do, but how we should think about the loan loss provision through the balance of 2020 now that you’ve moved past at least that initial change in accounting standard?

George L. Bchara — Chief Financial Officer

Yeah. I think — so, first of all, as you mentioned, we recorded a $65.5 million charge in the first quarter in our provision related to the change in the macroeconomic outlook related to COVID. As Norm and Lee mentioned, we’ve actually not seen deteriorations in the portfolio here over the last couple of months. And what that would mean is that our expected charge-offs as a result of COVID-19 won’t occur until the next calendar year. So, I think it’s fair to say that the allowance balance will stay where it is and maybe slightly decline this year before we recognize what we would say is the expected charge-offs from COVID-19.

Brian Nagel — Oppenheimer & Co. Inc. — Analyst

Got it. Thank you very much.

George L. Bchara — Chief Financial Officer

Thanks Brian.

Norm Miller — President, Chief Executive Officer and Chairman

Thanks Brian.

Operator

The next question is from Kyle Joseph of Jefferies. Please proceed with your question.

Kyle Joseph — Jefferies, LLC — Analyst

Hey, good morning, guys. Thanks very much for taking my questions. Just a few more on the credit side of the business. I guess this one is for George. If you could just give us a sense for the economic — underlying economic assumptions that are baked into your reserve currently, just talk about GDP and unemployment specifically?

George L. Bchara — Chief Financial Officer

Sure. I can give you a general sense. I think we use a Moody’s base macroeconomic forecast, which is consistent with many other public issuers. Our base case assumed that the economic — the performance of the portfolio would be consistent with where it was pre-COVID for the first couple of quarters and then converge towards that Moody’s economic output, and that’s kind of where we’re seeing things shake out today.

Kyle Joseph — Jefferies, LLC — Analyst

Okay, that’s helpful. And then, I really appreciate the color you gave on the comp in terms of the monthly performance there. But just delving into credit, I just wanted to get a sense for — if you could give us a sense of how delinquencies were trending by month? Just looking at your master trust data, it did look like DQs dropped between March and April. If you could give us a sense for what your consolidated book did between March and April and even into May from a delinquency perspective?

Lee A. Wright — Executive Vice President and Chief Operating Officer

Yeah, sure, Kyle. It’s Lee. I guess what I would tell you is, it was an interesting — and you guys wrote about this in your report, which I thought was well done. What we saw was, March, the tax season got truncated due to the COVID-19 pandemic and what came through. And so, we saw a difference in behavior in March than what we traditionally see. But as the government stimulus started to roll through in April, we saw tremendous benefits for our consumer and their own balance sheet, which obviously flow through to us. So overall for the quarter, we actually came out all right. And then, I would tell you, as we continue to move in — and obviously, we’re still early in the quarter, but saw a good performance from our customers and their overall liquidity right now. But obviously, as we look forward and as we see what happens after some of the unemployment benefits at the end of July and, as Norm talked about, some of the uncertainty going forward, that’s what gives us a bit of pause as we try and balance how do we extend credit and how do we think about that versus what we’re seeing in our portfolio today.

Kyle Joseph — Jefferies, LLC — Analyst

Got it. And then, just in terms of modeling, it looks like the yield on the portfolio has been under a bit of pressure. Is that — obviously, I think the mix shift and more originations at a higher yield will pressure that upwards. Is that being offset more by the higher level of DQs? Or is that more of a deferment impact there?

George L. Bchara — Chief Financial Officer

No, it’s driven by higher levels of charge-offs.

Kyle Joseph — Jefferies, LLC — Analyst

Okay.

George L. Bchara — Chief Financial Officer

So, the gross [Indecipherable] up, but it’s being offset by higher charge-offs in the quarter.

Kyle Joseph — Jefferies, LLC — Analyst

That makes sense. And then, last one from me, just if you could give us an update on your competitive trends as the economy reopens? I think about you guys on — your competitive trends on two fronts. First one is versus other retailers. And then, the second would be just more broadly, the availability of credit. If you guys can give us an update on those competitive dynamics as the economies started to reopen?

Norm Miller — President, Chief Executive Officer and Chairman

Yeah, what I would say from a general standpoint first, Kyle, is — and I think Lee mentioned it in his comments, we’re seeing applications in the first quarter — continuing to see applications at elevated levels as customers across the credit spectrum, and as I highlighted in my earlier comments in one of the responses, we’re seeing our cash and Synchrony customers, the higher credit quality customers up significantly year-over-year. That’s helping to mitigate our Conn’s financing tightening that we’re undertaking. In addition to that, at least initially out of the gate, we’re seeing traffic stronger in our showrooms, as well as the applications online. So we think we’re well positioned with both our credit spectrum and the offerings that we have for any type of credit quality customer and positioned well with home products to be able to capture on what we think is some real demand out there from the consumer.

Kyle Joseph — Jefferies, LLC — Analyst

All right, very helpful. Thanks very much for taking my questions, guys, and good luck.

Lee A. Wright — Executive Vice President and Chief Operating Officer

Thanks Kyle.

Operator

The next question is from Bill Ryan of Compass Point. Please proceed with your question.

William Ryan — Compass Point Research & Trading — Analyst

Good morning, and thanks for taking my questions. First one, just on the provision, if you could maybe be a little bit more granular on it in the sense of what component of the $117 million provision may have been specifically related to the current originations in the quarter, stripping out obviously COVID-19 and the other ancillary impacts? And second thing, as it relates to credit as well, I agree with your comment that tightening credit better to be more conservative than a little bit too loose because you end up having to clean it up over a longer period of time. But what do you need to see for you to cut — before you start to relax your credit standards sort of back to where they were before all this began to take place? Thanks.

Norm Miller — President, Chief Executive Officer and Chairman

Thanks Bill. I’ll answer the first question. Then I’ll — or the second part of the question, and I’ll give it to George to talk on the provision side of the house. So first, what we would want to see is, from a payment standpoint and what — how we’re seeing the portfolio perform from both payment — first payment default, credit delinquency standpoint as we see those buckets roll from a delinquency standpoint, we want to see the strength. And we’re obviously segmenting those customers and the consumers in a variety of ways, including new and existing, regional. And depending on how we see that unfold over the next three to six months, we’ll determine if frankly we needed to do additional tightening, if there happen to be a second surge or stress that we had not envisioned with the significant provision that we took in the first quarter, or the ability to be able to take increased risk because of the performance that we see giving us confident that the customer is not as distressed as our tightening is fearful [Phonetic] that they will be.

George L. Bchara — Chief Financial Officer

Yeah. And Bill, in terms of the provision, I think the best way to think about it, which we’ve laid it out in the earnings release, is the $117 million provision includes the $65 million or $65.5 million provision related to the economic outlook from COVID-19. That’s on the entire portfolio, including what we originated in the first quarter. And then, we also had higher charge-offs year-over-year, and that gets you back to that $117 million number.

William Ryan — Compass Point Research & Trading — Analyst

Okay. And just one last thing, when do you anticipate perhaps doing the next ABS transaction?

George L. Bchara — Chief Financial Officer

Yeah. I think — first of all, I would say that we are encouraged by the ABS market right now. We’ve seen a number of comparable issuers get deals done here over the last six weeks or so. We think we can do an ABS transaction right now, but we are also in a position where we don’t need to do an ABS transaction here for a while, primarily because of some of the factors that Norm and Lee mentioned around the shift in portfolio mix, so the fact that we’re selling fewer — more third-party and cash customers in addition to the fact that sales are down, meaning that we have less liquidity needs. Having said that, our expectation is to do one before the end of the year.

William Ryan — Compass Point Research & Trading — Analyst

Okay, thanks.

Operator

There are no additional questions at this time. I’d like to turn the call back to Norm Miller for closing remarks.

Norm Miller — President, Chief Executive Officer and Chairman

Thank you very much for the interest in the Company. And again, I want to thank all of our associates across all our facilities in the 14 states that we operate for their hard work during these challenging times. And we look forward to sharing with you information on the Company at our next quarterly call. Have a great day.

Operator

[Operator Closing Remarks]